So goes Europe, so goes the DOW!

In recent trading, the Dow was down 150 points while major bourses in Germany and France were off by nearly 3% as Europe’s crisis completed its migration from the back burner to the forefront of the market’s consciousness.

Last week, financial markets became fixated on Spain’s debt crisis and then turned to focus on French elections heading into the weekend. But it was developments in the Netherlands, where budget talks broke down this weekend, that really unsettled the markets.

Next to Germany, the Netherlands was considered “the cleanest country” in the EU in terms of its fiscal discipline, says Sassan Ghahramani, president and CEO of SGH Macro Advisors. “The triple-A of triple-A is now having a big dogfight over the budget. They may put a budget together but the government is going to fall apart.”

Indeed, Dutch Prime Minister Mark Rutte said new elections were an “obvious scenario” after budget talks ended and Rutte’s government lost the support of the right-wing Freedom Party, led by Geert Wilders. The Freedom Party opposed Rutte’s plans to bring the country’s deficit toward 3% of GDP. The risk for financial markets is Netherlands losing its AAA rating.

In Europe, right-wing parties tend to be extremely conservative on social issues, like immigration, but not necessarily what Americans think of as “conservative” on fiscal issues. These parties are “very anti-bank, anti-establishment,” Gharamani says.

Right-wing politicians in the Netherlands and France, among others, have been critical of the EU and are pushing back against the austerity measures agreed to in the EU Fiscal Compact Treaty. The compact, which was approved in January, obliges EU members to keep budget deficits below 3% of GDP and keep public debt at 60% of GDP.

“Northern countries are drifting away from the fiscal austerity they’re preaching to southern countries,” Ghahramani observes. “That’s an issue people are concerned about.”

Right-wingers, led by France’s Marine Le Pen, also fared better than expected in the first round of France’s presidential elections this weekend. That could pressure President Nicolas Sarkozy to mollify his support for the EU Fiscal compact as he heads into the second-round match up on May 6 against Socialist Francois Hollande, who is leading in the polls.

“Maybe people are finally realizing ‘Oh my god, we’re going to have a socialist in place’ but the surprise [in France] is the showing of the far right and the weak showing of the far left,” Ghahramani says.

But France’s election and the potential end of Sarkozy’s reign was on the market’s radar, he says. “Holland is just beginning. The problem there is the coalition led by liberals has now fallen apart. It’s an anti-euro type movement.”

Germany’s Angela Merkel faces similar pressures at home, even as her government is pushing for more austerity elsewhere in Europe. Merkel’s party is expected to lose support in local elections on May 6 in North-Rhine Westphalia, Germany’s largest state.

In the end, Ghahramani believes the rising anti-euro sentiment will cause changes in the domestic policies in various nations, rather than an “overhaul” of the EU itself.

Still, the political trends will complicate policymaking in the EU, which is concurrently facing a sharp slowdown in economic activity. Also Monday, dismal reports on German manufacturing and Italian consumer confidence reinforced concerns about the eurozone being in recession. Speaking of which, Spain’s central bank said its economy contracted for a second straight quarter, the conventional (albeit flawed) definition of a recession.

“Even as you’re fixing problems on the budget the real economic problem is starting to hit,” Ghahramani. “You’re getting a bigger hole to dig out of, which might even be a bigger problem than dealing with policy,” which is heading in a direction antithetical to the bulls.